Contents

Introduction | Major players

Major players in the global mobile payments marketplace

As seen in this recent infographic from Forrester Research, the global mobile payments marketplace is quite crowded. However the high number of players has not helped to increase the adoption rate among consumers and businesses. Nowadays the challenges are not to develop the technology but to change the habits of consumers/businesses and win their trust. Most consumers do not mind using their cards or cash to make a payment and will not switch to mobile payments until they understand the real benefits for them. The same principle applies to businesses – in order to incorporate new payment services, businesses must see the added value, not only for their business, but also for their customers. This whitepaper looks at a new trend in the financial sector – the spirit of ‘cooperative competition’, with a focus on the British banking industry, which has started to invest heavily in mobile payments.

Introduction | The Facts

Recent research carried out by PwC, ‘Retail Banking 2020: Evolution or Revolution’, based on a survey of 560 financial services executives from leading financial institutions in 17 countries, reveals that 55% of the senior retail banking executives surveyed view non-traditional financial services providers as a threat to traditional banks, while 31% perceive them as ‘innovative partnership opportunities’. PwC also identified the main areas for innovation and six priorities for retail banks to stay ahead of the game. As seen in the graph, there is a striking gap between the importance of the priorities and the level of preparedness. Technological, organisational, talent and cost constraints were identified as the main obstacles to success.

Introduction | The Facts

For a functional and successful marketplace (any type – be it retail, financial etc.) rivalry between companies or groups is a common and necessary presence. However these days a new model is emerging in the banking marketplace, triggered by the new wave of players and their disruptive technologies. To keep up with trend setters such as PayPal, Square, V.me from Visa etc, the banking industry must radically reshape and innovate its products and channels. Therefore some banks and financial institutions have adopted a new strategy - the ‘cooperative competition’ (as Philippe Eschenmoser, Head of Business Consulting at SIX Payment Services named it) which means partnering either with other banks or with various mobile payments providers. This spirit of collaboration is definitely defining a new era of innovation in financial services. Banks meet consumers’ need for trust and security, while mobile payment providers have the technological means to deliver an innovative, fast and convenient customer experience. In Europe, recent examples of this spirit of cooperation can be found in Sweden, France, Poland and UK.

These ventures are different, the cooperation involving either a number of mobile network operators, a mix of mobile network operators and a bank or two, or just banks partnering up and launching their own mobile payment service. There are so many payments solutions out there, all quite different and with varying degrees of sophistication, that consumers and businesses are overwhelmed and confused by the choices available. Faced with so many options, many consumers choose the familiar options – cash and cards. For these reasons, this new strategy emerging in the global banking industry is significant. Because of the scale of the collaborations, these new ventures have the potential to standardize the mobile payments industry and speed up the adoption rate, as consumers become more comfortable using mobile payment apps.

The various ventures | Overview

Sweden At the end of 2012, Sweden’s major banks joined forces to launch an app allowing users to transfer money in real time to anyone who has an account in another Swedish-connected bank and pay through the recipient's mobile number. SEB launched the mobile payment service ‘Swish’ together with Danske Bank, Handelsbanken, Nordea, Länsförsäkringar Bank, Swedbank and Sparbankerna. In December 2013 Swish celebrated one year, having more than 500,000 active users and registering more than 1 billion SEK (€113 Million) in transactions. These figures show that this collaboration has proved successful so far.

France

In September 2013, three major French banks (BNP Paribas, La Banque Postale and Société Générale) have decided to work together and launched a new online payment system called Paylib. The paying experience is similar to paying with a PayPal account, users can pay online using a simple login and password, after they have linked a card to their Paylib account. If more French banks join this venture, Paylib has the potential to become a competitive payment processor in France.

The various ventures | Overview

Poland

In July 2013, six leading Polish banks - Alior Bank, Bank Millennium, Bank Zachodni WBK, BRE Bank, ING Bank and PKO Bank Polski agreed to collaborate and help define a common standard for mobile payments in Poland. Their mobile payment services are based on PKO Bank's IKO app, which was launched in March 2013. The app lets customers make in-store and online payments, and also P2P (real-time money transfer person to person, using only the beneficiary’s telephone number). Although all six banks will use IKO app as the basis for their mobile payment services, the participating banks will add their own extra features.

UK mobile payments landscape | Zapp’s story

Zapp made headlines in January 2014 when it announced that five UK banks (HSBC, First Direct, Nationwide, Santander and Metro Bank) will adopt the Zapp payment app from autumn 2014. Zapp has been developed by Vocalink, one of the main providers of payment services to the UK public sector. At launch Zapp will only work for online purchases, but Zapp’s chief executive declared that the company is working on enabling in-store transactions by late 2015. 1.Download your bank’s mobile app to use Zapp 2.See your bank account balance before you make the payment 3.Pay instantly

The participating banks will embed Zapp within their existing smartphone and tablet apps. When shopping online using a smartphone or a tablet, Zapp app will be launched at check-out so customers can proceed to pay. If customers are using a PC/laptop to shop online then the websites will send a notification to the customer's phone which will then launch Zapp.

Because the app is not launched yet, there are a lot of questions regarding the security, convenience and user experience of this mobile payment. It all depends how seamless and fast the whole payment experience will be.

Zapp also announced partnering up with a few payment processing companies – WorldPay, Sage Pay, Optimal Payments and Realex Payments. These partners will hopefully bring a good number of retailers on board as well.

UK mobile payments landscape | Paym’s story

While Zapp managed to sign up 5 UK banks, Payments Council (an organization which sets the strategy for UK payment mechanisms) announced at the beginning of March 2014, that the new mobile payments service they have been working on since 2008/2011 will be called Paym. The exact launch date will be announced in April 2014 and the service will be available to use later in spring. This cross industry scheme has some major advantages: it is backed by the UK government and it will have a mass commercial rollout. It has been quite a long journey for this collaborative initiative to materialize: 2008 - The Payments Council invites companies to respond to a formal Request for Information and if selected they will work on developing the UK mobile payments scheme.

2011 - Launch of a collaborative project 'to make paying by mobile as easy, efficient and secure as any other way to pay'. 2012 - Payments Council confirms is building a central database that will allow customers to link their mobile phone number to their account details, regardless of who they bank with. 2013 - 8 financial institutions confirm their participation: Barclays, Cumberland Building Society, Danske Bank, HSBC Bank, Lloyds Banking Group, Metro Bank, Royal Bank of Scotland and Santander. 2014 - Payments Council confirms new mobile payments service will be called Paym The Payments Council has also confirmed on March 2014 the banks and building societies which will participate at launch - Bank of Scotland, Barclays, Cumberland Building Society, Danske Bank, Halifax, HSBC, Lloyds Bank, Santander and TSB. Clydesdale Bank, First Direct, Isle of Man Bank, NatWest, RBS International trading as NatWest, The Royal Bank of Scotland, and Yorkshire Bank will join later in the year, while Nationwide Building Society confirmed their intention to join in early 2015. Metro Bank and Ulster Bank also expressed their interest to join this scheme.

Paym will be integrated into customers’ existing mobile banking or payment apps as an additional way to pay, enabling them to send or receive money using just a mobile number. To receive payments through Paym, customers need to register their phone number and the account they want payments made into with their bank or building society. Payments made through Paym are sent by using established payment infrastructures such as Faster Payments Service and the LINK network. Customers need a smartphone only when they want to send money via Paym, for receiving payments via Paym, they do not require a smartphone, only a mobile number.

Zapp & Paym • Zapp and Paym are two unparallel industry collaborations –

unlike any other mobile payments services launched in UK and around the world, Zapp and Paym will have on board more than one bank or two.

• Their association with established financial institutions will help these ventures to gain consumers and businesses’ trust and therefore be adopted faster.

• Zapp will cater for consumer to business transactions, allowing consumers to make payments to retailers utilising their existing mobile banking app

• Paym will allow consumers to make person-to-person transactions via their existing mobile banking app using mobile phone numbers.

• Another competitive advantage is that consumers do not need to download any other applications, as both Zapp and Paym will be linked directly to consumers’ bank accounts

UK mobile payments landscape | Zapp & Paym

Our research | Consumers

Our research Back in September 2012 we conducted an online survey (with 204 respondents of varied demographics from UK) to find out what the population think of mobile/digital wallets, if they know what one is, their likelihood to adopt them in the near future and what their reservations would be. While neither Zapp and Paym have all the required features to be classified yet as ‘digital wallets’ ( they should also integrate offers, loyalty schemes as well as bank accounts, credit and debit cards), both ventures have a huge potential to become that ‘universal digital wallet’ that many companies are already working hard to create. Our research identified various considerations which needs to be taken in account when developing or introducing a mobile/digital wallet , considerations which are still valid today. For a digital wallet to succeed it is very important that users perceive a unified user experience which is defined as being: • Useful • Secured • Trustworthy • Easy to learn • Easy to use

The advantages of a mobile/digital wallet to consumers : • An option to offer ‘One click shopping’ experience and

flexible payment methods • No need to worry about keeping track of a physical

wallet/cash • Privacy/Password Management • Review purchases across websites if the system is

implemented universally • Electronic bill/receipts records • Saves time (No wasting time on re-entering information) • Easier to get a refund to cards used for purchases rather

than being forced into store credit because the original card used is forgotten at home.

Possible concerns of a mobile/digital wallet to consumers: • A new concept which deals with money so reliability is

unknown • Not yet one universal wallet that can be used on all

websites • The need for WiFi or 3G/4G connection to enable

transactions • Possible security issue

Our research | Businesses

The advantages of a mobile/digital wallet to businesses : • Increased efficiency for customers (i.e. less queuing time)

thus happy customers • Less impact on resources i.e. staff as processing purchases

will be done by customers • Possibility to advertise store offers and upsell during the

purchase process • Less physical cash held in-store

Possible concerns of a mobile/digital wallet to businesses: • Cost of implementing infrastructure to support the use of

digital wallets, i.e. WiFi and digital presence. • The need to adjust to changes in shoppers behaviour which

may have an impact on the business model • Possible lack of ‘face time’ with customers to enable physical

upsell of products and services • Possible need to interact with 3rd party vendors to gain

shoppers insight and marketing opportunities • Possible need to interact with 3rd party vendors to gain

shoppers insight and marketing opportunities • The reliability of the technology

Other possible considerations to bear in mind: • The accessibility should be carefully looked at to cater to

various types of users in various situations • Distribution of it should be wide and seamless (i.e: via

smartphone) • Coverage by many vendors accepting it as payment

method • Designing a system where the ‘account’ or ‘profile’ is not

jeopardising users’ privacy, so in cases the mobile / digital wallet security is breached there is minimal damage.

Conclusion | Our thoughts

There are a lot of questions regarding both Zapp and Paym apps, although both services promise a fast, simple and secure payment experience, until the apps are launched, no one can fully assess the functionality and reliability of these two mobile payments services. Nevertheless, these ventures mark an unprecedented phenomenon in the banking industry and the mobile payments marketplace. Consumers and businesses are still waiting for that standard secure mobile wallet that will make them move away from cash and cards, with extra benefits such as faster checkouts, discounts and promotions, access to real-time balances and location-based marketing offers.

References

1. PwC. March 2014. Retail Banking 2020 Evolution or Revolution? Available: http://www.pwc.com/gx/en/banking-capital-

markets/banking-2020/download-and-read-the-report.jhtml

2. Payments Council. March 2014. Overview of Paym. Available: http://www.paymentscouncil.org.uk/mobile_payments/

3. Mobile Payments Today. March 2014. Mobile payments taking off in UK. Available:

http://www.mobilepaymentstoday.com/article/229771/Mobile-payments-taking-off-in-the-

UK?utm_source=NetWorld%20Alliance&utm_medium=email&utm_campaign=EMNAMPT03242014

4. Mobile Payments Insider. January 2014. Major players in the mobile wallet race. Available:

http://www.mobilepaymentsinsider.com/2014/01/24/major-players-in-the-mobile-wallet-race/

5. Bain &Company. February 2014. Mobile payments: Finally ready to take off. Available:

http://www.bain.com/Images/BAIN_BRIEF_Mobile_payments_Finally_ready.pdf

6. The European Financial Review. February 2014. Burying the Hatchet: Banks across Europe Collaborate to Innovate. Available:

http://www.europeanfinancialreview.com/?p=7921

7. Global Banking & Finance Review. July 2013. Polish banks in unique cooperation to set the standard for mobile payments. Available:

http://www.globalbankingandfinance.com/polish-banks-in-unique-cooperation-to-set-the-standard-for-mobile-payments/

8. Phoenix UX. September 2012. Digital Wallets: The next big thing? Available: http://www.phoenix-ux.co.uk/digital-wallets-big-thing/